Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-13-2004

Mark I Restoration v. Assurance Co of Amer
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-2070




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                                                    NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT




                          No. 03-2070




                MARK I RESTORATION SVC,
                                  Appellant

                               v.

           ASSURANCE COMPANY OF AMERICA




         On Appeal from the United States District Court
            for the Eastern District of Pennsylvania
                  (D.C. Civil No. 02-cv-03729)
             District Judge: Hon. Cynthia M. Rufe


           Submitted Under Third Circuit LAR 34.1(a)
                       October 7, 2004

Before: SLOVITER, VAN ANTWERPEN and COW EN, Circuit Judges

                    (Filed October 13, 2004)




                  OPINION OF THE COURT
SLOVITER, Circuit Judge.

       Appellant Mark I Restoration SVC appeals from the District Court’s order

dismissing with prejudice its complaint against the Assurance Company of America for

failure to state a claim upon which relief can be granted.1 Finding no error, we affirm.

                                             I.

       The case at bar stems from an underlying action filed by Christine Broadwell

against Nationwide Mutual Fire Insurance Company and Work Restoration, Incorporated

in a Pennsylvania state court. After Broadwell’s home was purportedly damaged through

skunk infestation, she made a claim for coverage to Nationwide. In response, Nationwide

hired Work Restoration to deodorize and remediate Broadwell’s home. In turn, Work

Restoration subcontracted portions of this work to Mark I. In her complaint, Broadwell

alleged that Work Restoration misused chemicals thereby causing her bodily injury.

       By way of a third party complaint, Work Restoration joined Mark I as a defendant

to Broadwell’s suit, alleging that Mark I introduced certain chemicals and deodorizers

while performing work in Broadwell’s residence. Work Restoration averred that if it

were ultimately found liable for Broadwell’s injuries, Mark I would be liable to it for

contribution and indemnification.

       At all times relevant to this action, Mark I was insured under a liability policy

issued by Assurance. Pursuant to this policy, Mark I sought coverage for Work

   1
       The District Court had jurisdiction pursuant to 28 U.S.C. § 1332; this court has
jurisdiction pursuant to 28 U.S.C. § 1291.

                                              2
Restoration’s claims. Assurance refused to provide Mark I with a legal defense, citing

the “pollution exclusion clause” in the policy.

       After successfully defending against Work Restoration’s third party complaint in

state court, Mark I filed a complaint against Assurance in federal court on the basis of

diversity jurisdiction, seeking a declaratory judgment and alleging bad faith. The District

Court granted Assurance’s motion to dismiss the complaint with prejudice. Mark I

Restoration SVC v. Assurance Co. of America, 

(E.D. Pa. 2003).

This timely appeal followed.

                                              II.

       This court reviews a district court’s resolution of a motion to dismiss for failure to

state a claim de novo.   A dismissal for failure to state a claim is appropriate only if it

“appears beyond doubt that [the complainant] can prove no set of facts in support of [its]

claim which would entitle [it] to relief.” Conley v. Gibson, 

, 45-46 (1957).

We must apply Pennsylvania law.

       In Count I of its complaint, Mark I sought a declaratory judgment that Assurance

had a duty to defend it against Work Restoration’s complaint. It has long been the law in

Pennsylvania that the nature of the allegations contained in a complaint filed against a

policyholder control whether an insurer must provide a defense. Roman Mosaic & Tile

Co. v. Aetna Cas. & Sur. Co., 

, 668 (Pa. Super. Ct.1997). Stated otherwise,

“[i]t is not the actual details of the injury, but the nature of the claim which determines



                                              3
whether the insurer is required to defend.” Springfield Township v. Indem. Ins. Co. of

North Am., 

, 762 (Pa. 1949). Thus, a court determines an insurer’s duty to

defend by analyzing the factual allegations in the complaint pending against the insured

and determining whether those allegations state a claim conceivably falling within the

coverage of the controlling policy. Mutual Benefit Ins. Co. v. Haver, 

, 745

(Pa.1999).

       In dismissing Mark I’s complaint, the District Court held that a “pollution

exclusion” clause contained in the controlling policy absolved Assurance of a duty to

defend. Under this clause, coverage does not extend to lawsuits complaining of

“‘[b]odily injury’ or ‘property damage’ arising out of the actual, alleged or threatened

discharge, dispersal, seepage, migration, release or escape of pollutants.” App. at 108.

The policy defines “pollutants” as “any solid, liquid, gaseous or thermal irritant or

contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.”

App. at 105.

       Mark I sets forth two arguments as to why the District Court erred. First, Mark I

contends that, the pollution exclusion aside, Assurance had a duty to defend because

Work Restoration’s complaint contained allegations apart from those related to the

application of potential “pollutants.” Second, addressing the pollution exclusion clause

directly, Mark I argues that the clause is ambiguous and therefore must be construed

against Assurance.



                                              4
       A.      The Scope of Work Restoration’s Allegations Apart from the Pollution
               Exclusion

       Mark I maintains that certain of the claims pending against it sounded in theories

that did not involve the negligent introduction of potential “pollutants” and, therefore,

regardless of the pollution exclusion, the District Court’s ruling was in error. See

Nationwide Mut. Fire Co. v. Shank, 

, 71 (E.D. Pa. 1997). Work

Restoration’s third party complaint alleged that Mark I:

       [P]erformed work at [Broadwell’s] residence and introduced certain
       chemicals, deodorizers, odor eliminators, and/or other foreign substances in
       an attempt to eliminate [Broadwell’s] house odor problems . . . . If
       [Broadwell’s] claims are proven . . . then the same arose in whole or in part
       by the negligent acts or omissions of . . . Mark I . . . including but not
       limited to the application, spraying and dispersal of chemicals, deodorizers,
       odor eliminators, and/or other foreign substances.

App. at 262-63 (emphasis added). Mark I further notes that Broadwell’s underlying

complaint alleged that Work Restoration failed to train and properly supervise its agents

and employees and that it failed properly to warn Broadwell – allegations sounding in

theories broader than the negligent use of purported pollutants. Citing the “including but

not limited to” language of the third party complaint, Mark I maintains that Work

Restoration incorporated against it the full panoply of the allegations contained in the

Broadwell complaint, thereby incorporating allegations in addition to the purported

spraying or dispersal of “pollutants.”

       However, as the District Court correctly held, W ork Restoration’s complaint did

not incorporate against Mark I the allegations of the Broadwell complaint. Mark I

                                              5
Restoration 

; see also Pa. R. Civ. P. 1019(g).2 Moreover,

even if the allegations of the Broadwell complaint were somehow incorporated against

Mark I, all of Broadwell’s claims “rest upon the fundamental averment” that Broadwell

suffered personal injury due to her exposure to potential “pollutants” and therefore,

regardless of the precise legal theory the allegations may take, they undoubtedly implicate

the pollution exclusion clause. Madison Constr. Co. v. Harleysville Mut. Ins. Co., 

, 109-10 (Pa. 1999). Under the controlling policy, coverage does not extend to

any personal injuries “arising out of” the dispersal of pollutants. Thus, even though

certain of Broadwell’s allegations sounded in theories such as failure to warn or failure to

train, the injuries Broadwell allegedly suffered thereby certainly “ar[ose] out of” the

dispersal of potential “pollutants.” 

then, even if W ork Restoration’s third

party complaint did incorporate against Mark I the broader negligence allegations of the

Broadwell complaint, those broader theories nonetheless implicated the pollution

exclusion clause.

       B.     Whether the Pollution Exclusion Clause is Ambiguous

       Next, addressing the pollution exclusion clause directly, Mark I argues that the



   2
       Mark I’s reliance on Fed. R. Civ. P. 10(c), which pertains to “Adoption by
Reference” and “Exhibits,” is misplaced because Work Restoration’s third-party
complaint and the underlying Broadwell complaint were filed and prosecuted in
Pennsylvania state court. Thus, whether Work Restoration’s third-party complaint
incorporated by reference the Broadwell complaint and thereby triggered in Assurance the
duty to defend were questions controlled by the Pennsylvania Rules of Civil Procedure,
specifically Pa. R. Civ. P. 1019, rather than by the Federal Rules of Civil Procedure.

                                              6
clause is ambiguous and therefore unenforceable as applied to the allegations contained in

Work Restoration’s third party complaint. Specifically, Mark I argues that the materials

that Work Restoration alleged that it sprayed and dispersed are not clearly identified in

the complaint and may have been innocuous items, thereby presenting an ambiguity as to

whether those items are “pollutants” as defined by the policy.

       Terms in an insurance contract are “ambiguous if they are subject to more than one

reasonable interpretation when applied to a particular set of facts.” Wagner v. Erie Ins.

Co., 

, 1231 (Pa. Super. Ct. 2002), aff’d, 

(Pa. 2004) (mem.).

Thus, the question of ambiguity is “not . . . to be resolved in a vacuum.” Madison Const.

. Rather, this court must analyze the disputed policy terms in the

context of the facts alleged in the complaint filed against Mark I.

       Again, the policy defines pollutants as “any solid, liquid, gaseous or thermal

irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and

waste.” App. at 105. Taken in context, and with reference “to a particular set of facts,”

Madison Constr. 

, this language is not ambiguous. Work

Restoration’s complaint alleged that Mark I introduced “chemicals, deodorizers, odor

eliminators, and/or other foreign substances” at the Broadwell residence. App. at 262.

Although the terms “chemicals, deodorizers, odor eliminators, and/or other foreign

substances,” are conceptually quite broad and certainly may, in theory, include benign

substances rather than “pollutants,” the specific nature of the claim alleged against Mark I



                                             7
prevents this court from engaging in such untethered speculation. Rather, as used in the

third party complaint, the terms “chemicals, deodorizers, odor eliminators, and/or other

foreign substances” unambiguously refer to the “‘irritant[s] or contaminant[s]’” described

as “pollutants” in the policy.

       To be sure, Work Restoration’s third party complaint does not identify the specific

product or products that it alleges Mark I to have introduced into the Broadwell home.

Mark I argues that, because of this lack of identification, one cannot know whether such

substances qualify as “pollutants” under the Assurance Policy. In support of this

proposition, Mark I references the following language from the Supreme Court of

Pennsylvania:

       We determine first whether the policy’s definition of “pollutant” applies
       unambiguously to the floor sealant or curing compound known as Euco
       Floor Coat. The pertinent inquiry is not, as Madison contends, whether the
       policy’s definition of “pollutant” is so broad that virtually any substance,
       including many useful and necessary products, could be said to come within
       its ambit. Rather, guided by the principle that ambiguity (or the lack
       thereof) is to be determined by reference to a particular set of facts, we
       focus on the specific product at issue.

Madison Const. 

(emphasis added). Mark I reads this passage as

establishing a rule that unidentified substances necessarily cannot constitute pollutants

under pollution exclusion clauses. We cannot accept Mark I’s interpretation.

       The Madison Const. Co. court’s admonition to “focus on the specific product at

issue” was a response to the insured’s argument that the definition of “pollutant” in the

insurance policy at issue was ambiguous because it was conceptually broad enough to

                                             8
encompass virtually any substance. The passage quoted above was merely included to

reenforce the court’s principal holding that policy language must be construed in

perspective of the particular facts implicated. The court did not, contrary to Mark I’s

argument, establish a per se rule that unidentified substances cannot be pollutants. We

are confident, therefore, that the Supreme Court of Pennsylvania, if confronted with the

pollution exclusion clause in the context of Work Restoration’s allegations against Mark

I, would find the clause unambiguous notwithstanding the fact that the third party

complaint fails to identify the at-issue substances with any additional particularity. See

McKenna v. Pac. Rail Serv., 

, 825 (3d Cir. 1994) (noting that federal court

sitting in diversity must predict how highest state court would rule on issue presented).

                                            III.

       Finally, in Count II of its complaint, Mark I alleged that, in refusing to defend

against Work Restoration’s third party complaint, Assurance acted in bad faith and

thereby violated 42 Pa. Cons. Stat. § 8371. Liability under 42 Pa. Cons. Stat. § 8371

requires a showing that the insurer lacked a reasonable basis for denying benefits and that

the insurer knew or recklessly disregarded its lack of a reasonable basis for denial.

Terletsky v. Prudential Prop. & Cas. Ins. Co., 

, 688 (Pa. Super. Ct. 1994).

Here, Mark I alleges that Assurance breached its duty to act in good faith by denying

coverage and by not conducting an adequate and reasonable investigation of the claim.

Mark I’s arguments, however, are contrary to law.



                                             9
      As this court has previously noted, where there is no duty to defend an insured

against a suit, the insurer obviously has good cause to decline to defend. Frog, Switch, &

Mfg. Co., Inc. v. Traveler’s Ins. Co., 

, 751 n.9 (3d Cir. 1999). As explained

above, Assurance had no duty to defend Mark I against Work Restoration’s third party

complaint. Moreover, under Pennsylvania law, an insurance company has no

responsibility to investigate beyond the four corners of the complaint. Scopel v. Donegal

Mut. Ins. Co., 

, 607 (Pa. Super. Ct. 1997).

                                           IV.

      For these reasons, we will affirm the District Court’s dismissal of Mark I’s

complaint for failure to state a claim. Moreover, because any attempt to amend would

have been futile, the District Court’s “with prejudice” dismissal was not error. Foman v.

Davis, 

, 182 (1962).




                                            10